Finance management for small business owners is no small feat. From monitoring the books to paying employees and somehow finding money to pay your own salary, there’s a lot to keep track of. Overwhelming as it may be, these financial tips for business owners can help.

The Importance of Managing Your Business Finances

Managing your small business finances sheds light on what is working and where you can improve. You will be able to more effectively monitor your inventory, make decisions about your purchases and determine whether you have enough cash flow to maintain current operations. If you do not monitor your finances, you may be unaware of excess cash flow waiting to be used or of insufficient funds to maintain your current practices.

Managing your small business finances is also essential because it:

  • Provides banks and investors with the information they need to loan you money or invest in your company.
  • Helps you avoid expenditures that no longer support your company.
  • Stabilizes your business and sets you up for success.

Money Management for Small Business

Consider these business finance tips for better management of your company funds:

Create a Budget and Cash Flow Assessment

Creating a budget as a new small business owner is challenging because it takes time to understand how you’ll be spending money and what your expenses will look like. Still, you want to have a preliminary budget in place from the start. Start with your fixed expenses — rent, insurance costs and salaries — before predicting your variable costs, like office equipment or supplies.

Likewise, you’ll want to keep track of your cash flow from day one. Many small businesses manage their cash flow using a spreadsheet, but other options are available, too, such as cloud-based assessment software.

When you start planning your budget and assessing your cash flow early, your processes will become more accurate over time.

Invest Money Back Into Your Business for Growth

The amount you reinvest into your company varies. You may typically want to invest between 20% and 30% back into your business, but it will ultimately depend on your goals. Once you’ve outlined your short- and long-term goals, determine how much those goals will cost you to achieve. Whatever your goal, it is probably focused on growth. You may reinvest money into your business by:

  • Hiring more employees.
  • Upgrading technology.
  • Placing more emphasis on marketing efforts.

Invest Money Back Into Your Business for Growth

Maintain Good Business Credit

As with your personal life, maintaining good credit goes a long way. If you ever want to expand to a new location, make renovations, purchase a company car or make another large expenditure, you’ll likely need a loan. And though it’s not impossible to get a loan with bad credit, having good credit makes it easier. Paying your bills on time helps ensure your business credit remains in the upper ranges.

Stay Up to Date With Your Bills

Every dollar counts as a small business owner, and every dollar should go toward innovation, operations, salaries and so on. When you pay your bills on time, you can enhance your company credit score and avoid the fees and penalties that come with missing payments.

You can use several methods to keep up with bills, and it doesn’t have to be complicated. Setting a reminder on your phone for payment due dates or blocking off chunks of time in your Google Calendar may be enough. If you can, it may be wise to set up autopay. It takes just a few minutes, and then you’ll never have to worry about a forgotten payment. Just make sure someone monitors your statements to avoid fraud or incorrect spending.

Put Away an Emergency Fund

As a business owner, you know that not every month is going to look perfect on paper. While those months where perhaps you aren’t earning as much as you would hope are frustrating, they’re often great learning opportunities that show you how you can improve. Even so, you’ll want to set aside an emergency fund to cover potential losses during challenging periods.

A good rule of thumb is to have between three and six months of expenses set aside in a savings account. It can be difficult finding the money to set aside — every dollar counts, after all — but you may be able to find emergency funds by cutting costs or finding opportunities to make more money.

Cut Costs Where Applicable

The old adage is true — you need to spend money to make money. However, you may be able to find places where you can cut costs and put away funds for emergencies. Several ways you can cut costs include:

  • Going paperless: Going paperless means you won’t have to buy ink, toner or paper. You also won’t have to invest in equipment to organize your piles of paperwork, like filing cabinets and folders.
  • Marketing online: Internet marketing is much more inexpensive — and often more effective — than traditional print marketing. If you haven’t yet, create your business social media profiles and dig into the world of email marketing, online ads and search engine optimization.
  • Cutting back on software: Subscriptions in our daily lives pile up, and they might be adding up at your business, too. Take a good hard look at the software subscriptions you’ve purchased and if they are still relevant and helpful to operations. Cancel what you do not need.
  • Buying refurbished equipment: Buying all-new equipment can be pricey, and it’s not always necessary. See what refurbished equipment you can get before shopping for brand-new supplies.

Remember Good Bookkeeping Practices

Setting aside time periodically to review and monitor your books is good practice, even — perhaps especially — if you already have a bookkeeper. You’ll become more familiar with your company’s finances, which is never a bad thing. When you have more familiarity with how your business spends money, you may be able to spot opportunities for saving. Plus, when you check in with your bookkeeper, you can avoid wasteful spending or potential embezzlement.

Implement a Sound Invoicing Strategy

Accurate invoices position your business as professional and successful, and they help minimize late payments that can lead to cash flow issues. You can create invoices on platforms like Microsoft Word or Excel, or you can use one of the many templates available online. Another option is to invest in invoice software, which allows you to create professional-looking invoices with less effort. Plus, they lead to less human error on paperwork.

Part of your invoice strategy may involve invoice factoring — in which you can sell unpaid invoices to a factoring company and get cash in return. This solution can help your company improve its finances.

Don’t Forget to Pay Yourself

It’s easy to forget to pay your own salary as a business owner, but it’s not a trap you want to fall into. Remember that you’re an employee of the business, too, and your salary needs to be paid. In the worst-case scenario, if something were to happen to the company and you end up out of business, you could find yourself without ever having gotten paid.

Another important factor to keep in mind is your retirement plan. As a self-employed individual, you will not have access to a 401(k) the way you might if you were a traditional employee. You have several options for setting aside money for your retirement, including opening the following savings accounts:

  • Solo 401(k)
  • Simple 401(k)

Look for Outside Funding

External funding comes from sources outside your company. Examples include investments from private individuals, bank loans and selling company shares. Outside funding is a great way to help your company grow and gain access to expert advice from investors or shareholders.

Contact Porter Capital to Help With Your Small Business Finances

Contact Porter Capital to Help With Your Small Business Finances

Monitoring your business finances and managing your cash flow is essential for your business’s success and future growth. If you’re facing issues with your cash flow or dealing with late payments from customers, Porter Capital can help. We provide invoice and accounts receivable factoring that can help your business increase its cash flow.

We’ve provided more than $6 billion in funding for businesses since 1991, and we’re ready to help your business manage its finances. Contact us to learn more!

How To Use the Cash Flow Margin Calculator

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